The US Supreme Court has again decided to shed some light on the issue of an ERISA plan's ability to obtain reimbursement from a participant who recovers a settlement from a third party. The Court announced November 28th that it will decide the issue in Sereboff v. Mid Atlantic Medical Services - a case from the Fourth Circuit Court of Appeals. Ross Runkel's Employment Law Blog has a good summary of the case and the issues here. The DOL had filed an Amicus Brief in the case which you can access here.
Those who draft subrogation provisions in plans and have had the occasion of researching the law in a particular jurisdiction with respect to this issue understand how confused the state of the law is, even after the Supreme Court's decision in Great West. There are some great resources on the topic, however, a few of which are John H. Langbein's article--"What ERISA Means by "Equitable": The Supreme Court's Trail of Error in Russell, Mertens and Great-West", David Levin's article--"Recovering Money Owed to Plans: Subrogation Agreements Can Be Enforced" and this one by James Zalewski --"Welcome to the Jungle." (The title is very apropos.)
There's a very interesting subrogation opinion just issued by the Eastern District of Pennsylvania: Benefit Concepts v. Carmelann Macera. The facts of the case are as follows:
The plaintiff was an administrator of a self-funded health plan and was also a fiduciary of the plan, and the plan document contained a standard subrogation clause. When the defendant was injured in an automobile accident, she filed suit against the party involved in the automobile accident and the suit was settled for $60,000. The subrogation agent for the plan administrator of the health plan which had paid for part of the defendant's medical bills incurred in the accident demanded that the defendant reimburse the plan for the medical expenses which the plan had paid. (Before the plan paid the defendant's medical bills, the defendant had signed a Subrogation Agreement in which she agreed to abide by the plan's subrogation clause, but the defendant had added language to the effect that the defendant recognized the plan's claim only "to the extent allowed by Act VI [the Pennsylvania's Motor Vehicle Financial Responsibility Law ("MVFRL")] and all other laws regarding payment of reasonable expenses.")
The plan administrator brought suit seeking to enforce the plan's subrogation rights and the defendant asserted a counterclaim alleging that the plan administrator breached its fiduciary duties by overpaying her medical providers, arguing that the plan administrator should not have paid the medical bills in full due to section 1797(a) of the MVFRL. That provision provided statutorily specified limitations on how much could be paid to medical providers under the MVFRL.
Preemption Analysis: The court held that section 1797(a) was preempted by ERISA under the "deemer clause" of ERISA because the plan was a self-funded plan. However, before reaching the "deemer clause" analysis, the court first analyzed whether the provision would be "saved" from preemption as a law regulating insurance under the "savings clause" of ERISA, utilizing the two-part test promulgated by the U.S. Supreme Court case of Kentucky Ass'n of Health Plans v. Miller , 538 U.S. 329, 341-42, 123 S. Ct. 1471, 1479 (2003) (read about the Miller case here and here):
For a state law to "regulate insurance," and thus be saved from preemption, it must (1) "be specifically directed toward entities engaged in insurance"; and (2) "substantially affect the risk pooling arrangement between the insurer and the insured."
The court went on to hold that the provision met the Miller test, and was thus saved from preemption under the "savings clause." With respect to the first prong of the test, the court reasoned that Section 1797(a) is specifically directed toward the insurance industry because it was enacted "to reduce the rising cost of purchasing motor vehicle insurance." With respect to the second prong of the test, the court opined that Section 1797(a) substantially affects the risk pooling arrangement between insurers and their insureds because it limits the rates that medical providers can charge insurers, thus reducing insurers' actuarial risk and in turn permitting them to pass the cost savings onto the insureds.
However, the court then stated that since the Plan was a self-funded employee benefit plan, "the deemer clause forecloses any possibility that Section 1797(a) could apply", noting in footnote 8:
To the extent that Section 1797(a) regulates entities other than self-funded employee benefit plans, such as automobile insurance companies, the deemer clause does not apply, and ERISA does not preempt the application of Section 1797(a) to those entities.
Comment: Under the court's analysis, it would appear that fully insured health plans would also likely be included as entities which would be subject to section 1797(a) of the MVFRL which leads to this query: How would the court have ruled on the fiduciary breach issue if the plan had not been self-funded? (The court did not reach a decision on that issue since the provision was preempted under the "deemer clause.") Could fiduciaries of insured health plans be deemed personally liable for failure to comply with section 1797(a) of the MVFRL?
Read more about the case in this article from Law.com: "ERISA Found to Pre-empt Motor Vehicle Law's Medical Caps."
Also, remember the U.S. Supreme Court case of FMC Corporation v. Cynthia Ann Holliday, 498 U.S. 52, 111 S. Ct. 403, 112 L.Ed. 356 (1990), which held that ERISA preempted the application of section 1720 of Pennsylvania's MVFRL under a pre-Miller analysis.
For those of you following developments in the health care subrogation arena, the Third Circuit has issued an important opinion reversing a decision reached by a federal district court in New Jersey. The district court had ruled that a New Jersey statute which prohibited the enforcement of health care subrogation claims was saved from preemption under ERISA's insurance savings clause. The Third Circuit decision--Levine v. United Healthcare Corp.--held that the statute was preempted under ERISA and not "saved" from preemption under the ERISA insurance savings clause. The decision will apparently impact several class action lawsuits which are pending against major health care insurers in New Jersey, brought by plan participants seeking to recover amounts that insurers had recovered from plan participants who in turn had recovered against tortfeasors. The Third Circuit utilized the new factors set forth in the Miller case, and held that the New Jersey statute was not “specifically directed toward entities engaged in insurance” so that it did not fall within the "savings" clause of ERISA:
To avoid ERISA preemption a state law must be “specifically directed” toward the insurance industry. The New Jersey statute is not. Because the New Jersey statute could be applied to any contributor in any civil action, it is merely a statute that has a significant impact on the insurance industry. As in Pilot, this is not sufficient.
There is a very interesting dissent in the case which argued that the New Jersey collateral source statute was a "law specifically directed towards the insurance industry that has some bearing on noninsurers."
Read more about ERISA preemption in previous posts which you can access here.
Also, you can access the DOL's Amicus Brief in yet another well-known subrogation case--the QualChoice case--here. This article here from Law.com indicates the QualChoice case is one the U.S. Supreme Court will consider as a possibility for review.